KB is headed into BK.
KB Toys Inc. filed for Chapter 11 bankruptcy protection Wednesday, the latest victim of a bruising holiday-season price war that forced FAO Inc. to liquidate part of its business and cut into the sales and profits of other big-name toy sellers.
Pittsfield, Mass.-based KB, best known for its ubiquitous mall-based toy stores, said its restructuring could include closing as many as 500 underperforming stores. KB operates 1,200 stores -- 134 in California -- and employs 13,000 people nationwide.
Unlike FAO, a high-end toy seller saddled with the debt of several acquisitions, the 80-year-old KB should be able to recover from the troubles of 2003, said KB executives and others in the toy industry.
"I think that there's a place in the mall environment to have a toy store," KB Chief Executive Michael Glazer said. "We need to continue to go in the direction of having more exclusive toys and more licensed products that aren't available to the mass merchants."
Glazer said a four-year, $350-million loan from Fleet Retail Group Inc. would allow the company to continue normal operations during the restructuring.
"I have no concern about them disappearing," said Sean McGowan, a toy industry analyst at Harris Nesbitt Gerard. "They have the support of the vendors, they have some financing, and they have some stores that are profitable."
In December, KB indicated that cutthroat pricing among the three largest toy sellers -- Wal-Mart Stores Inc., Target Corp. and Toys R Us Inc. -- took a toll during what should have been prime selling season. In order to preserve cash, KB, which is privately held, said it was halting payments to some suppliers.
Some manufacturers became worried about KB's financial health even earlier. Video game maker Activision Inc. of Santa Monica said it stopped shipping products to KB three months ago.
Sales at KB declined as the discounters in particular duked it out for market share by selling some of the season's hottest toys below wholesale costs.
The price wars forced FAO to liquidate its Zany Brainy educational toy chain, sell its chain of Right Start stores and auction off its flagship FAO Schwarz stores in Manhattan and Las Vegas.
The competition also hurt Toys R Us, which said this month that 2003 profit would be lower than expected because total sales rose less than 1% during the crucial holiday period, and sales at U.S. stores open at least a year fell nearly 5%. The company in November shuttered its Imaginarium stores.
